Identifying and dealing with debt

Few people in the UK manage their finances perfectly, with unsecured and secured loans, credit cards and mortgages adding up to a nationwide debt of billions of pounds. However, through various ways, getting debt under control isn't an impossible task.

The first thing many financial experts advise is to prioritise any debt you may have. As debt piles up, it becomes more and more difficult to work out which debt is really important and which is less so - tempting people to lapse into apathy.

After totalling up the money you owe, the next step is to calculate how much you can afford to pay back. Some experts recommend paying back a maximum of 50% of what you owe, including credit you have taken out i.e. credit cards, loans and overdrafts. While this may not seem like a lot, it's enables you to pay back your creditors while still having enough income left over to spend on regular household bills and food.

Deciding what type of debt is the most important is the next step.

Protecting your home should be the priority above all else, particularly if you have a family, so any rent arrears or mortgage payments should be at the top of the list for re-payment. Any outstanding bills that carry the threat of jail or a heavy fine if they are not paid should be next on your priority list. This includes council tax, income tax and VAT as well as TV license fees. Non payment of taxes could mean the money being taken straight out of your wages, with "wilful" non payment potentially leading to imprisonment.

After prioritising your debts and working out how much you can afford to pay back, it's time to negotiate with your creditors.

Many creditors will be anxious to strike a deal as quickly as possible due to the fact that if they don't, you may not pay their bills at all. While this can be an intimidating situation to find yourself in, there's plenty of help available. Experts at the Citizen's Advice Bureau and The Consumer Credit Counselling Service have helped thousands of people trapped in debt.

The vital thing to do at this stage of solving your debt problems is to ignore pressure or threats you may be receiving from some creditors. Phone calls and letters may arrive, urging you to pay one creditor before the other but it's important to remember which debts have the priority to be paid off first.

While this may upset your creditors, a large debt that has you facing very real problems should always be paid off before one that has a smaller payment or can be held off for a short time.

One final factor to consider is to focus on debts where the interest charged is at its highest. For example, a credit card charging 15.9% interest should be tackled before a UK secured loan of 8.9% is paid off.

With a commitment to meeting payments and with sound financial advice, becoming debt free needn't be a struggle.

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Matthew Pressman is a freelance writer and frequent flyer. When not travelling, he enjoys golf and fishing.